Salesperson Pay and The Fair Labor Standards Act

The Fair Labor Standards Act (“FLSA”) establishes the minimum wage, overtime pay, recordkeeping, and youth employment standards that your business must adhere to. You may not be aware that FLSA and its minimum wage provisions apply to salesperson pay. Even if you pay your salespeople draws, you may still have to consider FLSA and the minimum wage.

Assuming your business pays salespeople a draw, employees that claim to work more hours than the assumed average work week may have claims under FLSA if their commissions during the pay period are insufficient to pay them the minimum hourly wage. Your business should create policies to make sure that salespeople (and others that work for your business) earn the minimum wage. First, make sure that there is no doubt about the hours the employee works. Require each employee to clock in and clock out. Second, pay draws to salespeople on a regular basis, whether weekly or bi-weekly. Third, this draw should be enough to cover the minimum hourly wage per each expected hour worked over an average work week. Finally, on the settlement date, make sure each salesperson earned commissions equal to or greater than the minimum hourly wage times the number of hours worked. If a salesperson did not make enough to cover the minimum wage, pay the salesperson a supplement.

Requiring salespeople to use a time clock to record their hours worked is a best practice to protect against FLSA and state wage statute actions. Without a time clock, each employee will be the sole keeper of information regarding how many hours he or she worked in a given period in the event of a suit against your business under FLSA or state law. Handwritten timesheets may not offer sufficient protection for your business. A disgruntled employee can simply state he or she was told to falsify the timesheet and keep the hours stated by his or her supervisor. A time clock adds legitimacy to the time recording process at your business.

A time clock is ineffective without time punching policies that you strictly enforce. Failing to punch in and out at the beginning and end of the day and during lunch breaks can lead to guess work by your office staff. Also, you can face additional headaches if you allow one employee to punch in and out for another. Create and enforce a policy that requires employees, including salespeople, to accurately punch their own time.

Individuals and/or groups can file FLSA actions against your business. Awards under FLSA can include back pay, statutory damages and attorney’s fees. Many states allow similar awards under their respective state employment and labor laws. The awards that FLSA and state statutes permit can be quite lucrative for plaintiffs’ attorneys. Make sure that your processes do not lead to your business being vulnerable to FLSA and similar state actions.

Our firm is here to assist you with tailoring your timekeeping process or helping you respond to FLSA or state employment and labor statute claims. If you need help with any of these matters, please call us at 631-224-7000.